Thoughts on the Fed

There were plenty of things that I wanted to write about when I wasn't posting, but I wanted just to take a break. Sure, my traffic has basically died.

One of the things that kept jumping into my mind is how the market is always reacting to old news. Of course, that is the only news that we can get. But that is one of the main issues facing the Federal Reserve in the next few months and over the next year. They are trying to gauge whether to further stimulate the economy by cutting rates, stay the course and do nothing, or try to finally apply the brakes and start raising interest rates.

It has to be one of the most difficult and frustrating aspect of their jobs. I blame Greenspan for so much of this current mess. Many have voiced their frustration that his Fed held the rate at 1% for too long. And when they did start raising the rates, they did it too slowly. The problem was that they didn't want to apply the brakes to soon and squash a fledgling recovery. And they had to make their decisions, good or bad, with old news. But from what I remember, he was cheered at the time. And remember that when they started raising rates, hoping that long term rates would start to follow along, they didn't. Treasury bonds stayed low fueled by foreign investment.

So be ready. Ultimately, there is no doubt that the current Fed will hold rates too low for too long and will overshoot. It is an unfortunate side effect of using the idea of finding the "perfect rate" for the economy using data that is outdated. I don't know if there is a better way to do it. I'm frankly not that smart.